Stocks: Breakthrough by Dow Jones to 13,000 Looks Real

Is it any wonder stock prices could rise up the wall of worry? The heavy hitters came out Monday and Tuesday of this week with earnings that “blew away” analysts…

Google Inc. (NASDAQ/GOOG) reported that it earned $2.51 billion in the second quarter of this year, beating analyst expectations.

JPMorgan Chase & Co. (NYSE/JPM) earned $5.4 billion in the quarter.

International Business Machines (NYSE/IBM), the world’s biggest computer-service company, posted a profit of $3.66 billion in the second quarter, easily beating analyst expectations.

Apple Inc. (NASDAQ/AAPL) reported last night that it made earnings of $7.31 billion in its latest quarter, a huge jump.

Even troubled Citigroup, Inc. (NYSE/C) beat the Street’s expectations when it reported a profit of $3.34 billion for its second quarter.

Five companies, $22.2 billion in profits added to the bottom line for shareholders. Profits are pouring into the coffers of public companies. These profits are resulting in the price/earnings ratios of stocks declining, making stocks immediate-term attractive to investors. Stocks, at this point for investors, are a better alternative to bonds.

On May 20, 2011, my lead editorial in these pages was, “Dow Jones 13,000: Why it Will Become Reality.” I’m sticking with that prediction.

The prospects for our economic future are not bright. I write about that every day. But, in the meantime, a government bent on borrowing more, a Federal Reserve ready to expand the money supply, corporate profits pouring in—what else can a stock market ask for?

Michael’s Personal Notes:

All this talk about increasing the government debt ceiling is really a waste of time.

As far as I’m concerned, there isn’t any risk that Congress will say “no” to a ceiling of debt for the government. We are dealing with politicians and, at the end of the day, the only way a politician gets re-elected is by the votes from public citizens.

Can you see a politician saying, “No, Mr. Obama. Your government needs to stay within its limit of $14.3 trillion of debt.” Voter outcry would be too great, too overwhelming.

My predictions…

The government debt ceiling will be raised. Maybe it’s going to $17.0 trillion or even $18.0 trillion. The actually passing of the bill will be a non-event for the stock market, as the market never considered that increasing the debt limit would be a problem. Finally, the government will do it best to reach its new debt ceiling as soon as it can.

Where the Market Stands; Where It’s Headed:

Stocks took off yesterday. The Dow Jones Industrial Average gained over 200 points (I’m checking our stats, but I believe this was the biggest single-day gain of the year for the Dow Jones).

All those analysts telling us that the bear market rally was over—they are proven wrong. The Dow Jones actually closed yesterday exactly 1,010 points above where it started 2011, up 8.7% so far this year.

Bear market rallies end in speculation or euphoria…when investors are back in stocks…when it looks like stocks are “the place to be.” We are not there yet.

What He Said:

“If the U.S.housing market continues to fall apart, like I predict it will, the stock prices of major American banks that lend money to consumers to buy homes will come under pressure—these are the bank stocks I wouldn’t own.” Michael Lombardi in PROFIT CONFIDENTIAL, May 2, 2007. From May 2007 to November 2008, the Dow Jones U.S. Bank Index of the world’s largest bank stocks was down 65%.